Policies to Control Inflation Identify Contractionary MP Contractionary FP Explain Lower MS rise in i/r cost of borrowing increases reduces I + C purchased

sed with loans fall in AD GPL falls Reduce G, increase T budget surplus personal disposable income and business aftertax income falls dampening effect on C and I AD falls less pressure on GPL Evaluation Inappropriate for cost-push inflation Time lag, but shorter than FP: sell bonds to public Unpredictable effect on C and I Inappropriate for cost-push inflation Time lag Unpredictable effect of taxes on C and I Poor may suffer more: need subsidies / supplementary schemes from government Cannot estimate how much to decrease AD by Administration unlikely to undertake vigorous antimonopoly / antiunion stance Large firms enjoy EOS and high rate of technological progress

Market Policies - Manpower policy

Improve efficiency of labour markets so that any given level of AD associated with lower level of unemployment Better matching of workers to jobs, reducing labour market imbalances or bottlenecks Reduce monopoly / market power of unions and businesses less able to push up wage rates ahead of average productivity increases + reduce discretionary power of large firms to raise prices - Business: antitrust laws, remove existing legal restrictions upon entry reduce / eliminate restrictions upon foreign imports - Labour: anti-monopoly laws to unions, decentralization of collective bargaining, link portion of wages to profits wage more flexible downward

- Pro competition policy

Wage-price Policies - Wage guidepost - Price guidepost - Wage / prize freeze Welfare benefits

Wage rates rise with rat e of increase in labour productivity Prices should change to compensate for changes in unit labour costs Something like price ceiling Remove benefits people more willing to be employed increase productive capacity of country

R+d, Increase productivity increase AS education and training 1) Priorities of goals: low inflation rate SR: lower rate of economic growth and higher level of unemployment 2) Economic philosophy government subscribes to: rely on free market / intervention: dependent on degree of government intervention considered necessary

Workability and compliance: business and labour leaders have to forgo the goals of maximum profits and higher wages little voluntary cooperation Strong economic incentives could develop to evade controls Effect wage-price controls interfere with allocative function of price system Need to ensure that people are equipped with skills / are able to find jobs quickly (frictional and structural unemployment) Need to ensure jobs are available in the first place Long run measure